In July, on behalf of the Ukrainian World Congress and the 20 million Ukrainians living abroad who are citizens and taxpayers of major International Monetary Fund donor countries, I sent a letter to Christine Lagarde, IMF managing director, requesting that the IMF reconsider its requirement that gas rates be increased for Ukrainian households as a condition for receipt of the next tranche of funding.
My rationale was simple. Ukraine is reforming. Hard-won macroeconomic stability has been achieved and the economy is rebounding.
Now is not the time to impose conditions on Ukraine that would jeopardize further reforms and threaten the fragile socio-economic situation.
Yes, it is important to achieve gas parity between households and businesses. However, this objective can be implemented gradually as the economy strengthens and the purchasing power of Ukrainian citizens grows.
Ukrainians have suffered immensely from the Russian aggression and borne the brunt of the ensuing economic recession followed by further hardship from the necessary structural reforms. They should not see their meagre household incomes depleted even more when there has been no accompanying rise in those incomes to help bear these increases.
Although people with low income receive subsidies, average-income Ukrainians do not and it is this large segment of the population that the IMF must consider. These rate hikes will fall almost entirely on the shoulders of those who earn a low income yet do not qualify for subsidies. While average nominal salaries have increased 2.2 times from 2013 through 2017, utilities as a share of household income have increased 5.3 times. In simple terms, average Ukrainians, who paid 3 percent of nominal household income for utilities in 2013, now pay 16 percent and struggle to imagine how they can pay substantially more. It is small wonder that remittances from Ukrainians working abroad have risen from 4.8 percent of gross domestic product in 2014 to 8.4 percent of GDP at the end of 2017, up 43 percent to $9.3 billion last year.
Through the efforts of the Ukrainian government, supported by the IMF, bilateral partners, international financial institutions and civic society, Ukraine has made tremendous strides in the past four years.
The Ukrainian government has undertaken an ambitious reform agenda that has resulted in macroeconomic stability and an economic rebound, with ten quarters of consecutive GDP growth that now stands at 3.6 percent in the second quarter of 2018.
The current account has decreased from 9 percent in 2013 to 2 percent today with public spending contracting by 6 percent of GDP since 2013 to less than 42 percent of GDP.
Public debt is down to 64 percent of GDP, well below the 71 percent IMF target.
Ukraine has also demonstrated a record of strong compliance with a number of important requirements from the IMF and others by implementing major reforms, particularly in banking, energy, public procurement, business deregulation, as well as concrete measures to reduce corruption.
In June, the Ukrainian Parliament adopted, and President Petro Poroshenko signed into force, a highly anticipated law to set up an anti-corruption court.
This law establishes the final key institution required to ensure an effective fight against corruption, alongside other recently established anti-corruption institutions, including the National Anti-Corruption Bureau of Ukraine, the Specialized Anti-Corruption Prosecutor’s Office of Ukraine, and the National Agency on Corruption Prevention.
These are truly extraordinary achievements, particularly when considered in the context of a country defending itself against Russian aggression, which to date, has claimed the lives of over 11,000 Ukrainians, resulted in over 1.5 million internal displaced persons, and at least 183 Ukrainians still held in prisons in Russia, Russian-occupied Crimea, and Russian-occupied parts of the Donbas. Today Ukrainians, and the world community at large, pray for imprisoned Ukrainian filmmaker Oleh Sentsov’s life as his health deteriorates dramatically in the 110th day of his hunger strike, in which he is demanding the release of all Ukrainian hostages of the Kremlin.
In view of all of these factors, the Ukrainian World Congress calls upon the IMF to reconsider its position and waive its condition of an increase of gas rates for households for its next funding tranche.
We ask that the IMF and the international community continue to provide support to Ukraine until the many systemic reforms that have been initiated over the past years begin to bring visible benefits to the economy. This is not only good for Ukraine, but also for Europe and the global economy.
We trust that the IMF will recognize that now is not the time to implement gas rate increases and threaten everything that has been achieved.
This is not a price that Ukrainians can afford to pay, or should be forced to accept, in return for continued international support.
Eugene Czolij is president of Ukrainian World Congress. The UWC is the international coordinating body for Ukrainian communities in the diaspora representing the interests of over 20 million Ukrainians. The UWC has a network of member organizations and ties with Ukrainians in 53 countries. Founded in 1967, the UWC was recognized in 2003 by the United Nations Economic and Social Council as a nongovernmental organization with special consultative status.
